In GST act, there is a situation where rate of GST on output is less than Rate of GST on inputs. According to section 54(3) of the act, a registered person may claim a refund of unutilized input tax credit on account of Inverted Duty Structure

 (Rate of tax on Inputs > Rate of tax on Outputs & Output services) at the end of any tax period.

A tax period is a period for which return is required to be furnished. Thus, a taxpayer can claim the refund of unutilized ITC on monthly basis.

 

Situation where such refund cannot be claimed:

1. Output supplies are nil rated or fully exempt supplies except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council.
2. If the goods exported out of India are subject to export duty.
3. If supplier claims refund of output tax paid under IGST Act.
4. If the supplier avails duty drawback or refund of IGST on such supplies.

 

How to claim such refund:

• Registered person is required to file Form GST RFD-01A. it can be file filled either monthly or Quarterly basis depends upon the frequency of GSTR-1
• Proper return in GSTR-1 and GSTR-3B should also be filled for the said tax period.
• Fill out the Form GST RFD-01A  in GST portal
• After submission ARN will be generated by the GST Portal.
• Submit the printed documents with relevant supporting documentation to the jurisdictional authority.

Tax official will process the Refund Application. Once the application is processed, refund will be disbursed manually.

 

Note- The registered persons applying for refund must give an undertaking to the effect that the amount of refund sanctioned would be paid back to the Government with the interest in case it is found subsequently that the statutory requirements of the CGST Act, 2017 have not been complied with in respect of the amount refunded.

Time Limit for application:

The refund application in FORM GST RFD-01A needs to be filed within 2 years from the end of financial year in which such claim for the refund arises.

Maximum Amount of Refund={(Turnover of Inverted rated supply of Goods & Services) × Net Input Tax Credit ÷ Adjusted total turnover} – Tax Payable on such Inverted rated supply of Goods & Services.

Basic terms for above formula

Refund amount” means the maximum refund that is admissible;

• • “Net ITC” shall mean input tax credit availed on inputs during the relevant period other than the input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both;

• • “Turnover of inverted rated supply of goods” means the value of inverted supply of goods made during the relevant period;

• • “Tax payable on such inverted rated supply of goods” means tax payable on such inverted rated supply of goods under the same head i.e. IGST, CGST, SGST;

• • • “Adjusted Total turnover” means the turnover in a State or a Union territory, as defined under clause (112) of section 2 of CGST Act, excluding the value of exempt supplies other than zero-rated supplies and the turnover of supplies in respect of which refund is claimed under sub-rules (4A) or (4B) or both, if any, during the relevant period.
  • “Relevant period” means the period for which the claim has been filed.